Silicon Valley’s Circle Jerk Finds a Friend on Wall Street

Posted on August 11, 2008
Filed Under Web 2.0 Kool Aid |

In my past criticism of “analysts,” I’ve used the “analyses” provided by Citigroup’s Internet analyst Mark Mahaney as examples of just how full of bullshit analysts can be.

I haven’t been alone in finding Mahaney to be a great source of BS.

Kevin Maney of called Mahaney’s analysis related to Amazon’s Kindle ebook device the “lamest bit of Wall Street analysis that I can recall.”

But were Mahaney’s Kindle sales projections clairvoyant? TechCrunch (which ) thinks they were.

According to an anonymous TechCrunch source “close to Amazon with direct knowledge of the numbers,” the number is 240,000 - surpassing Mahaney’s projection.

In his declaration that “we know how many Kindles Amazon has sold,” TechCrunch’s Erick Schonfeld wrote:

Back in May, Citi analyst Mark Mahaney was estimating that total sales of Kindle’s this year would only reach 189,000. That number may have already been surpassed (depending on how many of the 240,000 units Amazon sold before January). His estimate called for 467,000 units to be shipped next year, and 2.2 million in 2010, resulting in total revenues going from $60 million in 2008 to $741 million in 2010. It might be time for him to revise those numbers upward.

Proving that distance is no obstacle for a circle jerk, Mahaney obliged.

TechCrunch boasts that the data from its anonymous source was a consideration for Mahaney:

In his research report, he throws a shout-out to TechCrunch:

So we acknowledge being “out-sourced” by TechCrunch. But we believe the 240K number was well-sourced and believe reports of 40,000 shipments a month may also be reasonable. (Which could actually make our new 380K ’08 unit assumption overly conservative.)

As extra color, we believe that the TechCrunch datapoint refers to the number of Kindles that have been shipped to Amazon from suppliers and not unit sales by Amazon. There is always the possibility of Amazon not being able to convert shipments into sales and simply “stuffing the channel.

So let’s review this: a Wall Street analyst who is paid to provide his firm’s clients with cogent and insightful analysis apparently has to rely on TechCrunch for his data. And he apparently feels confident revising his “model” based on numbers provided by an anonymous source that TechCrunch tells us is “close to Amazon with direct knowledge of the numbers.”

Whether or not TechCrunch’s source is the “real deal” and has accurate information is irrelevant.

The real question is - just what are Citigroup’s clients actually paying for if its star Internet analyst has to revise his model every time a blog like TechCrunch publishes information from one of its “sources”?

To be fair, analysts are not supposed to play TechCrunch’s role and are expected to revise their projections when new data surfaces, but Mahaney’s history of revisions are amusing and borderline absurd.


On February 2, the day after Microsoft announced its bid for Yahoo, he predicted that there was a 60% chance that Microsoft would wind up acquiring Yahoo, noting a 20% probability that the original bid would be accepted and a 40% probability that a higher bid would be accepted.

On April 25, he upped the total probability that Microsoft would acquire Yahoo to 90%.

On April 28, it was noted in a TechCrunch interview with Mahaney that Mahaney did not think Microsoft was likely to simply walk away.


Fast forward to today.

Microsoft has walked away and although there remains the possibility that the move will eventually lead to a scenario in which Microsoft and Yahoo get together, Mahaney now says a Microsoft-Yahoo deal is “still 15% likely” according to the TechCrunch headline.

While Michael Arrington has been impressed at “how consistently right Mahaney has been in his analysis,” I certainly hope that TechCrunch readers don’t rush out to buy Amazon stock based on Mahaney’s vision of a “billion dollar” revenue opportunity by 2010, just as I hope that TechCrunch readers didn’t try to play the M&A arbitrage game based on the Mahaney’s Yahoo-Microsoft probabilities.

And I hope that investors didn’t base any eBay or Google investment decisions on Mahaney’s advice in this area either. In July 2006, he announced that “based on a proprietary product analysis of Google Checkout” the service “is a greater challenge to PayPal’s long-term growth than is widely recognized.”

Unfortunately, Mahaney’s “proprietary product analysis” appears to be broken. Google Checkout has been a dud by almost any measurement and according to Google itself, “Revenues realized through the Google Print Ads Program, Google Audio Ads, Google TV Ads, Google Checkout, YouTube, Postini and DoubleClick were not material in any of the periods presented.”

Of course, I should be fair. Mahaney’s advice wasn’t so bad. At the time Mahaney had issued it, eBay’s stock had already declined by 30% from August 1, 2005 (when he had issued a Buy recommendation on it). So investors who gave his new advice any credence got what they deserved.

In summary, I hereby suggest that Citigroup adopt the following phraseology in advertisements for its analyst services:

For those who want to lose money going it alone, there are darts. For those who want to lose money with the help of a friend, there’s Citigroup. We’re with you every step of the way.

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